Train company GNER could retain a stake in a lucrative rail franchise after joining forces with a joint Virgin Trains and Stagecoach bid.

GNER gave up its East Coast Mainline contract after parent company Sea Containers ran into trouble.

But Virgin Trains and Stagecoach, which have formed a joint venture, announced on Friday that GNER would be partnering them in the competition.

If successful, York-based GNER will take a 10% stake in the franchise.

Virgin and Stagecoach would share the remaining 90% stake in the deal, which has been approved by the Department of Transport.

GNER is currently running East Coast services under a temporary management agreement until the winner of the franchise is selected.

Chief executive of Stagecoach, Brian Souter, and Virgin founder Sir Richard Branson said in a joint statement: "The management capability within the GNER team, combined with the strong track-record of Stagecoach and Virgin in delivering high-quality rail services to passengers across the country, will allow us to submit an innovative and compelling bid."

Other contenders for the franchise include transport companies Arriva, National Express and FirstGroup.

The companies will submit their final bids to the Department of Transport in June, with a final decision expected by autumn.

GNER has its headquarters in York, where it employs about 400 staff.

Labour MP for York, Hugh Bayley, said: "The GNER executive, Jonatham Metcalfe, has told me that the headquarters will stay in York if they won the franchise.

"Stagecoach and Virgin have also made it clear that they will maintain the GNER ethos on customer service."